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Growth in Saudi Arabia's non-oil private sector slowed in December 2021 as concerns about the Omicron COVID-19 variant hit customer demand and business confidence, according to a latest business survey.
The seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers' Index (PMI) fell three points from 56.9 in November to 53.9 in December. The reading was the lowest since March, but still indicated a solid improvement in operating conditions across the non-oil private sector economy.
Output levels rose at the softest rate since August, while a sharp slowdown in new order growth led to lower backlogs and subdued hiring activity, the report said.
Overall costs rose at the fastest rate since June due to higher prices of raw materials and other inputs. As a result, the outlook for future activity weakened to an 18-month low.
"The Saudi Arabia PMI ended the year on a dull note, as it registered its lowest reading for nine months due to concerns about the global spread of the Omicron variant leading to a marked slowdown in new business growth," said David Owen, Economist at IHS Markit.
The three-point drop was mainly driven by the New Orders sub-index, which also fell to a nine-month low in December.
"Of the four broad sectors covered by the survey, the latest data pointed to particularly sharp slowdowns in new order growth across manufacturing and services, as panellists often commented on cancelled bookings and weaker client demand. Meanwhile, new business from abroad rose at the weakest rate since April," said Owen.
The slowdown in demand growth also meant that more firms had time to complete orders, leading to a faster decrease in outstanding work. This led to the pace of job creation softening to a four-month low.
The 12-month outlook for business activity also dipped. The degree of confidence was the lowest seen for a year-and-a-half, with companies only reporting weaker sentiment during the first wave of the pandemic. Just 8 percent of firms were hopeful that output will increase in 2022, with optimism linked to expectations of higher demand and new product releases, the survey showed.
"Alongside the Omicron variant, faster inflation and strong competition were also mentioned by companies with a downbeat outlook."
(Reporting by Brinda Darasha; editing by Daniel Luiz)
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